Show:
Key Facts
Red Flags
Audit Procedures
Audit Failures
Audit Risk Model
100
What would happen if a “control-triggering events” in the purchase agreement of CBI Holding Company?
What is TCW would have the right to take control of CBI
100
What was Costello's personal interest in misrepresenting the financial statements for the 1992 and 1993 fiscal years?
What is year end bonuses were contingent on the company's performance
100
What was the name of the document Ernst & Young created for the 1992 and 1993 CBI audits?
What is Audit Approach Plan Update and Approval Form
100
Overall, did E&Y follow their audit program?
What is NO
100
What is the audit risk do auditors like to maintain for public companies
What is 5%
200
What did the auditors fail to investigate, in relation to the vendors of CBI Holding Company, according to a federal judge?
What is credit limit of the vendors
200
What happened to the New Chief Financial Officer shortly after he/she was hired by Costello in 1993?
What is the individual resigned 8 days after being hired because he had found several million dollars of "grey accounting"
200
What is the two key audit procedures in the 1992 audit for accounts payable?
What is -perform a search for unrecorded liabilities at April 30, 1992 through the end of field work -Obtain copies of the April 30, 1992, vendor statements for CBI's 5 largest vendors and examine reconciliations to the accounts payable balances for such vendors as shown on the books of CBI.
200
How many of CBI's largest vendors did E&Y examine?
What is 0.
200
The absence of internal controls and the lack of proper segregation of duties impact impact which aspect of the audit risk model?
What is control risk
300
What did Ernst & Young never identify during the 1992 audit of CBI that the judge had scolded them for?
What is find the 5 largest vendors of CBI
300
In 1993, Judge Lifland referred to an incident in which Robert Costello demanded something of the audit partner that hindered the firm's independence. This issue should have been a red flag to the auditors. What happened?
What is Costello demanded the auditors replace the manager on the engagement because his "inquisitive and probing nature" was disturbing to Costello.
300
What gave E&Y a reason to believe that there was a poor tone at the top?
What is the "undue" focus on achieving earnings goals
300
What was the concern with the "advances"?
That these payments were not actually advances, rather just payments for inventory, also E&Y made no attempt to determine what period the inventory was purchased in.
300
Accounts payable being a high risk affects which part of the audit risk model
What is inherent risk
400
What did the Judge Lifland conclude on Ernst & Young’s independence?
What is independence was impaired
400
What did CBI Holding Company Inc refer to the liabilities incurred in the beginning of 1993 as? Why were they a "red flag"
What is the liabilitieswere referred to as "advances" and they were a "red flag" because there was no evidence to show that they were incurred in the first few weeks of the year. It is suggested that perhaps the company pushed liabilities it incurred late in 1992 into 1993 to help the financial strength of the company in 1992. Also, it was a large amount of liabilities to incur in such a short period of time.
400
After being told about the “advances” made to pay unrecorded liabilities from a former CBI accountant and CBI’s controller, what should have E&Y done?
What is inform CBI’s board of directors
400
What was a flaw with E&Y's examination of CBI's vendors?
What is E&Y failed to determine the CBI's credit limit or to contact the vendors to learn more about these "advances."
400
What kind of risk did CBI Holding Company pose to E&Y?
What is "higher than normal"
500
Why did Ernst & Young decide not to inform CBI board of directors about the unrecorded liabilities?
What is this would eliminate the chance of obtaining a “reaudit” engagement of CBI
500
Name three of the identified control risk factors by Ernst & Young.
What is -dominance of the company by Robert Costello -the absence of an internal audit function -the lack of proper segregation of duties within the company's accounting department -the aggressive positions taken by management personnel regarding key accounting estimates -CBI's "undue" emphasis by top management on achieving periodic earnigns goals -the fact that Costello's annual bonus was tied directly to CBI's reported earnings
500
This company had a $1 million advance on CBI's books. If the auditors found this $1 million advance they would have been able to clearly establish that this amount wasn an unrecorded liability at year-end.
What is Burroughs-Wellcome
500
What was Judge Lifland's biggest criticism of E&Y?
What is E&Y's apparent failure to maintain independence
500
Explain the overall audit risk model values.
What is in order for audit risk to be low, detection risk must be low because control and inherent risk are high.